After you have studied Economics In the News, "Money and the Interest Rate: U.S. Banks Braced for Large Deposit Overflows." The Financial Times. July 30, 2014. Answer the following questions.
a. What changes in interest rate and the quantity of M2 occured between 2007 and 2014?
b. Why is the outcome feared by bankers optimistic?
c. By how much would the quantity of M2 demanded decrease if the interest rose to 2 percent, 3 percent, 4 percent. (Express
your answer as percentage of GDP).
d. What could the banks do to prevent deposits from decreasing by as much as predicted by the demand for M2 curve.
e. What would you expect to happen to the monetary base if interest rates rise? Why?